The Komenda Sugar Factory. A bitter or sweet investment decision?
The current debate on the revival of the Komenda Sugar Factory has understandably generated a lot of public interest, primarily because it has come at a critical time in the country’s history when there is a major concern about unemployment and the need for concrete action on the part of the government to find appropriate solutions to the problem.
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The substance of the debate ought not to be about whether or not it is prudent for the government to support the development or revival of the sugar industry in the country. Indeed, the decision is a validation and vindication of the bold efforts made by the New Patriotic Party (NPP) administration during its term of office in launching the Presidential Special Initiatives (PSIs) and other industrial development interventions such as the revival of the Pwalugu Tomato and the Juapong Textiles factories.
A clear testimony in support of this assertion is the fact that the world’s leading producer of alcoholic beverages, DIAGEO, through its local subsidiary, Guinness Ghana Breweries Limited, is now using the product from the Ayensu Starch Factory (one of the PSIs) as raw material in producing one of the finest premium brands of beer in Ghana, the Ruut Extra Premium Beer.
There are other examples that can be cited.
Be that as it may, these positive experiences do not provide a blanket cover for the government’s intervention in industrial activities. Each initiative or project must be carefully assessed on its own merits. In this regard, while acknowledging the efforts of the current government in bringing the Komenda Sugar Factory back to life, it is worth drawing attention to some major challenges that need to be addressed substantively to make the factory viable.
The critical success factors for any agro-processing enterprise activity include the following: Availability of raw material in quantities adequate to support processing capacity, the quality of raw material which will define quality of final output, price of raw material, processing cost which will depend on the process technology, quality of management and the level of operational efficiency, guaranteed local or export market for final product and policy and regulatory framework for the specific sector
Inadequate raw material availability
• The average annual production output of sugarcane in Ghana for the last five years (2010-2014) is 147,400 metric tonnes according to the Food and Agriculture Organisation (FAO).
• The Komenda Sugar Factory requires an annual input of 225,000 metric tonnes of sugarcane to operate at optimum capacity.
• Currently, since all the sugarcane produced annually is consumed, one can conclude that the total output of sugarcane required to be produced in 2016/17 crop year should be about 372,400 metric tonnes. (147,400mt+225,000mt) to satisfy both current consumption and raw material requirement for the factory (i.e. assuming current consumption remains constant)
• Since the yield per acre in Ghana, according to the FAO, is 10 metric tonnes, the total land area required for cultivation for the 2016/17 crop year is 37,240 acres. Land under cultivation for sugarcane throughout Ghana, is currently estimated at 14,530 acres. Additional land required for this crop year is therefore, 22,710 acres
• There is currently no field evidence indicating plans to secure and cultivate the required additional acreage of land both in the factory’s catchment area or other parts of the country for the 2016/17 crop year. It is worth noting that it is not-cost effective to transport sugarcane over long distances for two reasons: first because of high transportation cost, and secondly to avoid delays between harvesting and processing of sugarcane in order to preserve sugar concentration. Therefore, it is prudent to restrict raw material sources of supply to areas not too far from the factory.
Furthermore, the proposed funding of $24.5 million to be acquired by the government for sugarcane plantation development is yet to be secured, and even when secured, will require a minimum of six to 12 months to be disbursed to organised farmer based organisations (FBOs) before-farming operation starts. It is fair, therefore, to conclude that if the factory has no contingency measures in place to import raw sugar for processing, the factory will, to a large extent, be idle or be operating significantly below capacity for at least one year, with its consequent impact on debt servicing obligations.
Quality of raw material
• There is currently no evidence of a comprehensive programme to identify the appropriate plant varieties with high sugar content; a structured programme of establishing nurseries to produce the right quality and quantity of planting materials for multiplication, and a detailed programme for extension support to farmers.
Without any information to the contrary, one can assume that the varieties currently used for food consumption is what is available, which may not necessarily be ideal for industrial processing.
Low price offer to farmers
• The price of GH¢60 or $15 per metric tonne currently being offered to farmers by the factory is not competitive, compared to what is paid on the open market and it is also not adequate to cover their crop budget. This will not encourage farmers to produce or sell sugarcane to the factory
• It is worthy to note also that farmers in India (one of the leading producers of sugarcane in the world) receive more than $23 per metric tonnes.
Processing cost
• The cost and quality of sugar produced from the factory will partly depend on the type of process technology being used and the general cost of production. It is evident that production costs in manufacturing enterprises in Ghana are currently very high for a variety of reasons. Against this background, it is assumed that the cost of production at the Komenda Sugar Factory will be higher benchmarked with other global competitors. This can only be confirmed based on how well the factory’s product is able to compete with imported substitutes.
• Information available suggests that a new team of locally recruited management personnel and staff has been recruited to manage the factory. Whilst this may be commendable, it is worth noting that, since the country has over the years virtually lost its institutional memory and capacity for managing a sugar industry, one cannot underestimate the challenge confronting the new management team, since it may impact on operational efficiency.
No guaranteed local market
• For such an agro-processing factory to survive in a highly competitive industry, the company must have anchor customers to provide it with a secure market and cash flow. Sugar is one of the most competitively traded commodities in the world, with many low cost global producers. In 2015, world sugar production stood at 175 million metric tonnes.
• There is no evidence that the factory has made any arrangement with large consuming institutions, and supply chain intermediaries among other such agencies to buy the output from the factory.
Policy and regulatory framework for the sugar industry
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• Because of the nature of competition in the global sugar industry, most sugar-producing countries (over 100 countries in the world produce sugar) have a policy, regulatory and legal framework for the industry, to provide incentives for and protect local producers.
Currently, Ghana has no sugar policy or legislation which may pose very serious challenges for the survival of the Komenda Sugar Factory.
Appendix 1: Sugarcane Production in Ghana (2010 – 2014)
Year Value (MT)
2014 149,000
2013 150,000
2012 148,000
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2011 145,000
2010 145,000
Source: FAOSTAT
Appendix 2: Land Used for Sugarcane Production in Ghana (2010 – 2014)
Year Land Area (acre)
2014 14,826
2013 14,826
2012 14,826
2011 14,085
2010 14’085
The writer was the Minister of Trade, Industry and Presidential Special Initiatives (PSIs) in the Kufuor administration